Lowell Deeds

The latest on real estate recordings and new technology from the Middlesex North Registry of Deeds in Lowell

January 24, 2008

Who is Ambac?

by @ 7:25 am. Filed under Current Events

Today’s newspapers suggest that the Federal Reserve’s historic rate cut on Monday and the animated discussions in Washington on the urgent need for an economic stimulus package are primarily motivated by the precarious position of two large insurance companies that have guaranteed bond buyers against losses on more than $1 trillion of bonds. The two companies, Ambac and MBIA, historically have insured municipal and governmental bonds. If the city of Lowell issues a bond to raise money to construct a parking garage, let’s say, the bond will be more attractive to buyers if it is insured against default. An attractive, or more highly rated bond, allows the city to raise money at a much cheaper rate. During the real estate & credit boom of the past half decade, these bond insurers ventured into other bond fields, particularly bonds backed by subprime mortgages. As the foreclosure rate of these mortgages continues to climb, the chances of the bonds they secure defaulting grow as well thereby increasing the risk of loss to their insurers. If the insurers become insolvent because they have to pay out too much in losses because of foreclosures, everyone else that they insure – municipalities especially – will find the bonding process infinitely more expensive. I don’t fully understand all of this; I suspect one would need a PhD in Economics just to begin to grasp how this all relates together, but it is clear that the fiscal health of these two companies seem to be critical to the continued stability of our economy.

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